Forced Pooling for Landowners in the Marcellus Shale Region

Forced pooling is the concept that forces landowners to allow drilling under their property if enough of their neighbors have signed leases. Many people (PA Gov. Tom Corbett and MDN among them) think it’s not a good idea—calling it the equivalent of “private eminent domain.” But the reality is, it does widely exist. In fact, forced pooling exists (by various names) in all of the Marcellus Shale states except Maryland.

In New York and Pennsylvania its called compulsory integration. In West Virginia its called mandatory pooling, and in Virginia its called compulsory pooling. So when you hear those terms bandied about, it means “forced pooling.” A special note: Forced pooling provisions in both Pennsylvania and West Virginia do not (yet) apply to Marcellus Shale drilling, but proponents are trying to make it happen in those states.

The ProPublica website recently published a story on forced pooling along with an excellent chart outlining the laws in the various states. From that article, some background on forced pooling for landowners:

Forced pooling compels holdout landowners to join gas-leasing agreements with their neighbors. The specific provisions of the laws vary from state to state, but drillers are generally allowed to extract minerals from a large area or "pool" — in most states a minimum of 640 acres — if leases have been negotiated for a certain percentage of that land. The company can then harvest gas from the entire area. In most cases, drillers aren’t allowed to build surface wells on unleased land, so they use horizontal wells or other means to collect the minerals beneath those parcels.

Thirty-nine states have some form of forced pooling law. West Virginia and Pennsylvania each have measures that don’t apply to drilling in the Marcellus Shale, and proponents are trying to expand the laws in those states. (Check out our chart of forced pooling laws across the United States.)

In New York, the owners of 60 percent of the acreage in the proposed drilling unit must agree to lease their land before the state oil and gas board will consider a driller’s petition for compulsory integration, as it is known there. In Virginia, only 25 percent of the land must be leased. In all states with such laws, drillers must notify all the landowners within the prospective drilling area of their right to participate in a hearing before the oil and gas board, or whatever regulatory agency the state has set up for that purpose.

If the board approves the driller’s petition, holdout landowners typically have three choices: contribute to the cost of the well and share profits from the sale of the gas; don’t pay for the well and share the gas profits after a "risk aversion" penalty is subtracted, or receive a state-mandated minimum royalty payment. Landowners who choose none of these options are automatically enrolled in the last plan. Opting out is not a possibility.

Forced pooling is also supported by landowners who fear that drilling companies will place wells near their property and siphon off their gas without payment. Another group of supporters includes people who own the surface rights to their property while someone else owns the mineral rights–a situation known as a "split estate." Although these landowners usually aren’t entitled to any payment, some forced pooling laws compel drillers to compensate them, too.*

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I will say it again: I will never voluntarily sign a lease. I’ve seen the destruction well construction causes and want no part of it. My peace and quiet is far too valuable. Unfortunately, the neighboring landowner is a coal operator who would probably sell his own mother for a nickel. He has little respect for the land and less for the people who live on it.

http://twitter.com/NYShaleGasNow Andy Leahy

Key angles that get consistently overlooked in the debate over forced pooling — over-heated as it’s become, from both the side of the left, and the right:

Forced pooling is the legal mechanism by which two or more lease-holding companies can be compelled to work together, benefiting royalty-seeking landowners who already signed, but with separate companies. In PA, the status quo is that many mostly leased areas won’t get drilled (or will get drilled only part way), because there’s a blockage caused by a well-positioned speculator who performs no useful economic work — except to take a lease, and then to put his hand out for way more than his fair share of the proceeds of the gas wells.

Forced pooling (together with an up-to-date dormant minerals statute) can also sort out unproductive gray areas where there’s nobody on hand and findable with clear-enough title to sign the necessary lease — such as cemeteries, or really old oil and gas severances, etc. In a state such as PA, clinging to antique statutes, these title glitches can in fact limit the drillbit’s horizontal reach, but for no defendable reason of actual private property rights, or fairness. Instead, in these cases, the law is truly an ass.

Lastly, forced pooling traces its political history to “progressive” and “conservationist” philosophies — both of which are precursors to the very same environmental movement that now finds the situation convenient and useful for decrying these sorts of laws. If we, as a society, have our rules set up so as to leave behind a hodgepodge of odd-shaped parcels of undrilled and unfracked shale — rock that can never again be economically revisited — then this is the functional equivalent of *wasting* a future generation’s share of a finite, non-renewable natural resource.

On this, I ask — where is the hew and cry?

http://marcellusdrilling.com Jim Willis

Really excellent points Andy. So much of the time we focus on the headline and what seems is the most inflammatory parts of this debate (I know I’m guilty of it), which is forcing people who don’t want it to join. But as you point out, there’s much more to it than that. A very complex issue with lots of angles as you point out. Thanks for bringing those angles to light with your comment.